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When it comes to the British utilities market, you may feel there are as many options for utilities tariffs as they are jumpers. This can make the process understandably confusing and also may result in sticking with the same utility supplier without evaluating your choices and potentially saving you money. As winter temperatures and tariff increases are impending, it's important to evaluate what type of tariff you might want to consider: a fixed versus variable one. Defining Fixed Versus Variable A fixed tariff is one in which you enter into an agreement with the utilities company on a per-unit price for your utility bill. Fixed tariffs will extend through a certain time period, such as one year to three years. Variable tariffs are those that can fluctuate in terms of tariff prices. They may be cheaper in the summer, when there is less demand for heating and boiler usage, yet more expensive in the winter when demand greatly increases. Making Comparisons As a general rule, variable prices tend to be the cheapest home utilities in the beginning of when you sign up for the tariff. This is because fixed-price tariffs represent a risk on the part of the utilities company. When they extend a fixed price to you for two years or more, they are projecting tariffs will not increase beyond this cost. However, rising costs of energy could mean the fixed price a utility company offered you a year ago that seemed high is suddenly lower-priced than a variable tariff. When you opt for a fixed tariff, you are thinking in the longer term instead of the short term. A variable tariff is less of a risk for utilities companies, so they are able to offer it more cheaply. Because utility companies can track the energy rate with current demand, they can offer a cheaper rate knowing they will get their money's worth. Members of the "Big Six" utilities companies have already announced price hikes of between 8 and 10 percent on variable costs that will take place in the next two weeks. To capitalize on the chances consumers are looking to switch, many energy suppliers are starting to offer cheaper fixed-term prices. Here are some examples: -Npower's "Price Protector" fixed-price plan extends into March 2017 and will cost a household an average of £1,341. -Scottish Power's "Fixed Price Energy" lasts until January 2017 and will cost a household an average of £1, 341 per year. Variable rate tariffs typically are about £1,150 annually at their current rates, which is a cost savings of nearly £150. Examining Trends Two schools of thought tend to exist regarding finding the cheapest utilities, whether they are fixed price or variable, and much of the considerations depend upon your spending personality. If you are the type of person who has not switched tariffs before and is unlikely to track the energy market for the cheapest utility, locking in a fixed price tariff may be for you. This is because long-term fixed price tariffs tend to save you money in the long run. For example, in 2010 British Gas offered a tariff called Price Promise 2012 that offered a fixed price that cost households around £1,083 annually. This ended up being a good deal as the current rates are roughly £1,343 per year -- a savings of more than £250. However, if you are the type of person who is willing to evaluate the market when prices increase, a variable rate may be for you. This is because they are consistently cheaper than fixed price tariffs. As long as you are willing to make occasional changes if your tariff increases excessively, a variable rate may be for you. A similar option is to opt for a shorter-term fixed price rate. For example, Ovo's New Energy Fixed tariff is £1,172 annually, but only lasts for a year. However, it can ensure you make it through the winter at a set price. If you do opt for the variable rate, attempt to find a tariff that does not levy a penalty if you switch. Because penalties of between £50 and £100 can negate any cost-savings, choosing a penalty-free tariff can help. Rachel Nall A freelance writer for nearly 10 years, Rachel Nall's work has appeared on EverydayHealth, Healthline, FabFitFun.com and National Geographic's Green Living. She is a Journalism and Political Science graduate from the University of Tennessee at Knoxville where she received the Torchbearer award for academic achievement and service.
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